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The article was first published in The Business Times on 20 August 2018.
Welcome spur to board renewal
THIS WEEK’S TOPIC: Do you agree with the nine-year rule for director independence? How will the term limit affect recruitment of directors and overall board quality and competencies?
Source: The Business Times
Date: 20 August 2018
Tan Chong Huat
RHTLaw Taylor Wessing LLP
While the logic is sound, an arbitrary nine-year limit may not benefit an issuer. It takes time for a board to obtain the familiarity necessary for meaningful decision-making. While independent directors who hit the limit can be retained as non-executive directors, this may be costly given that issuers will still have to comply with the provisions on number of independent directors.
The alternative of going to a two-tier vote is also not ideal as it allows certain shareholders to vote twice on the same subject and gives rise to the risk that independent directors may pander to them. Also, the Code does not adequately deal with the situation in which independent directors are not re-appointed – in such event, an issuer will either run the risk of not having sufficient independent directors for a period, or appointing one for compliance’s sake.